As inflation continues to rise, speculation is rife that the Bank of England (BoE) is set to raise interest rates three times this year, with the first as early as May. Foreign exchange (FX) broker, CurrencyUK, is urging exporters to book forward contracts now and fix prices to ensure a rate increase doesn’t affect them.
A rise in interest rates would be good news for importers as they would be able to purchase goods for less than they’re currently paying; however, it would not be good news for exporters as the weak pound – down 25% since 2007 – would be stronger, which would mean that they end up paying more.
Adrian Jacob, senior account manager at CurrencyUK, said: “Following Mervyn King’s letter to the chancellor hinting that the Bank’s monetary policy committee will raise interest rates to ward off inflationary increases, sterling’s currency exchange rate received a welcome boost rising against both the euro and US dollar.
“If interest rates are raised the value of the pound will inevitably increase. With this in mind, I would strongly recommend that UK businesses look at the options available to them when moving funds across currency zones and seriously consider booking rates forward to fix their prices,” he added.
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